Home Buyers Turn to USDA for Mortgages
Agency Program Backs Loans to Aid Rural
Development; No Money Down -- Even Now
By NICK TIMIRAOS
Tightened lending standards are leaving builders and
real-estate agents scrambling for new ways to move
cash-strapped buyers into homes. One increasingly popular
option: an obscure home-loan program offered by the U.S.
Department of Agriculture.
Erick Moore used a no-money-down USDA-backed loan to
buy this four-bedroom house outside Raleigh, N.C.
Created in 1991 as a way to boost homeownership in rural
areas, the program is being tapped by home buyers in
overbuilt exurbs who are attracted to the no-money-down
terms.
When Erick Moore first read about the USDA's Rural
Development Guaranteed Loan program, he says he imagined
it would be "restricted to some little farmhouse." Instead, the
33-year-old computer programmer moved last month into a
four-bedroom, three-bath home in Fuquay-Varina, N.C., 17
miles outside Raleigh. The house sits on nearly one acre
and features a brick facade, 10-foot ceilings and hardwood
floors.
"I couldn't believe it until we closed," says Mr. Moore, who
paid only $1,200 out of pocket to move into the $228,000
home. The seller contributed $5,000 in closing costs, and Mr.
Moore rolled the 2% fee charged by the USDA into the loan.
Mr. Moore, who owned a home in St. Louis before he
relocated to the Raleigh area last year, says a 60% drop in
his stock portfolio made it difficult to come up with a down
payment. He directed his Realtor to show him only homes
that were eligible for the USDA program.
Agency Program Backs Loans to Aid Rural
Development; No Money Down -- Even Now
By NICK TIMIRAOS
Tightened lending standards are leaving builders and
real-estate agents scrambling for new ways to move
cash-strapped buyers into homes. One increasingly popular
option: an obscure home-loan program offered by the U.S.
Department of Agriculture.
Erick Moore used a no-money-down USDA-backed loan to
buy this four-bedroom house outside Raleigh, N.C.
Created in 1991 as a way to boost homeownership in rural
areas, the program is being tapped by home buyers in
overbuilt exurbs who are attracted to the no-money-down
terms.
When Erick Moore first read about the USDA's Rural
Development Guaranteed Loan program, he says he imagined
it would be "restricted to some little farmhouse." Instead, the
33-year-old computer programmer moved last month into a
four-bedroom, three-bath home in Fuquay-Varina, N.C., 17
miles outside Raleigh. The house sits on nearly one acre
and features a brick facade, 10-foot ceilings and hardwood
floors.
"I couldn't believe it until we closed," says Mr. Moore, who
paid only $1,200 out of pocket to move into the $228,000
home. The seller contributed $5,000 in closing costs, and Mr.
Moore rolled the 2% fee charged by the USDA into the loan.
Mr. Moore, who owned a home in St. Louis before he
relocated to the Raleigh area last year, says a 60% drop in
his stock portfolio made it difficult to come up with a down
payment. He directed his Realtor to show him only homes
that were eligible for the USDA program.
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
| |
 |
That's relatively small when compared with the volume of business handled by the Federal Housing
Administration -- which guaranteed $102 billion in new loans during fiscal 2008. But interest in the USDA's
development lending program is growing rapidly in response to the nation's credit crunch and as most
private lenders have stopped offering loans with no money down.
To be eligible for a USDA-backed loan, a borrower can't have income that exceeds 115% of the median
county income, and the loans are restricted to areas with lower population density -- generally towns of no
more than 25,000 residents. So while home buyers in big cities aren't eligible for the loans, residents of
many of America's fastest-growing towns and exurbs do qualify. The loans that come through the program
are made by private lenders, then insured by the government and sold to Ginnie Mae, a federal agency that
sells mortgages to investors.
Home builders, many of which have overbuilt properties in these areas, are eagerly promoting the program
Scottsdale, Ariz.-based home builder Meritage Homes, says John Bargnesi, vice president for sales. "It's one
of our main tools right now."
Builders Promote Program
Meritage is advertising a "$500 move in" program to clear inventory in new exurban developments, including
the Buckeye and Queen Creek subdivisions outside Phoenix that have been hard hit by foreclosures and
falling prices. "If a builder is in one of these geographical areas, they certainly are using it," says Mr.
Bargnesi. "We're all in tune with it now."
D.R. Horton Inc., the nation's largest home builder by number of houses built, is promoting the program in
sales pitches for a number of new developments outside Austin, Texas. One is named Parkside Condos, a
development of 144 new two- and three-bedroom condos priced at $130,000 in Pflugerville. Kastera Homes
LLC, a home builder based in Boise, Idaho, is offering to pay closing costs for buyers who use a USDA loan.
D.R. Horton and Kastera didn't return calls seeking comment.
The success of the USDA program comes at a time when easy home financing is getting much harder to
find. Private lenders have stopped offering loans that require no money down, amid worries that borrowers
without equity are more likely to let their homes fall into foreclosure. In October, Congress terminated a
popular program that allowed sellers to fund down-payment "gifts" for new home loans backed by the FHA.
Next year, the FHA will require a minimum 3.5% down payment on all new loans, up from 3%, and private
lenders often require a minimum 5% down payment.
Such restrictions do not apply to loans backed by the USDA, which is best known as the guardian of the
nation's food supply. In fact, some buyers can finance 102% of the home price, factoring in a 2% USDA
mortgage insurance. That means that USDA loans typically carry lower monthly payments than FHA loans,
even in cases when the size of the loan is larger.
Sue Botelho of Northstar Mortgage Group in Destin, Fla., is promoting the USDA loans as part of a "move in
with a penny down" program. "The down-payment assistance has gone away. Subprime has gone away," she
says. "So now mortgage lenders are pretty aggressive in terms of making people aware of this USDA
program."
One of Ms. Botelho's clients, 46-year-old insurance adjustor Alan Sammons, paid nothing to move into a new
$270,000 home in the Florida Panhandle in June. He had spent more than a year trying to find a
reasonable loan before beginning construction on a custom four-bedroom, 3½-bathroom home in his
Crestview, Fla., subdivision, which includes a community swimming pool and lighted tennis courts.
"They're still building homes in here," Mr. Sammons says.
housing analyst based in Mesa, Ariz.
Some question the USDA's practice of allowing no-money-down purchases. "If you have to get a 102%
loan, you probably shouldn't be buying a house," says U.S. Sen. Christopher Bond (R., Mo.), who adds that
he supports the intent of the programs because it has traditionally been "very difficult" for rural borrowers
USDA officials, for their part, say that concerns about the program's 100% financing aren't warranted
because the department has a strong track record and because rural areas are less prone to big
increases in home prices. "We guarantee in a very controlled environment," says Philip Stetson, a USDA
administrator for the lending program. Because its average loan amount is just $120,000, he says that the
program is less susceptible to large-scale losses.
Income Verification
USDA- and FHA-backed loans aren't prone to some of the risks that faced subprime loans because the
government-insurance programs offer only fixed loans and require income verification. "We have not seen
any direct evidence at this point that 100% financing is leading to greater losses," Mr. Stetson says.
The default rate on USDA loans is slightly better than the rate for FHA-backed loans. Some 11.35% of
USDA loans were delinquent in 2008, while 1.4% went into foreclosure, according to the department's
statistics. Meanwhile, FHA loans had a 13.6% delinquency rate, while 2.3% went into foreclosure. That
compares to a 4.3% delinquency rate and 1.6% foreclosure rate on prime loans, and a 20.0% delinquency
rate and 12.9% foreclosure rate on subprime loans, according to the Mortgage Bankers Association.
Unlike the FHA, the USDA programs rely on a fixed appropriation from Congress, which totaled $4.1 billion
in the 2008 fiscal year, and new loans can't be made once that allocation is exhausted. The program was
able to make nearly $7 billion in loans this year because it received additional funding from other
department sources.
But heavy demand for the loans has administrators asking for more money. Officials say that the program
will run out of money next month, even though it has been funded through March. "Up until only two years
ago, we weren't even using the full amount," says Mr. Stetson. "It has been rather incredible at how it has
taken off."
To apply for a USDA Loan in Florida please fill out the contact form and we will contact you within 24hrs
or call Suzie 352-213-3424
Some question the USDA's practice of allowing no-money-down purchases. "If you have to get a 102%
loan, you probably shouldn't be buying a house," says U.S. Sen. Christopher Bond (R., Mo.), who adds that
he supports the intent of the programs because it has traditionally been "very difficult" for rural borrowers
USDA officials, for their part, say that concerns about the program's 100% financing aren't warranted
because the department has a strong track record and because rural areas are less prone to big
increases in home prices. "We guarantee in a very controlled environment," says Philip Stetson, a USDA
administrator for the lending program. Because its average loan amount is just $120,000, he says that the
program is less susceptible to large-scale losses.
Income Verification
USDA- and FHA-backed loans aren't prone to some of the risks that faced subprime loans because the
government-insurance programs offer only fixed loans and require income verification. "We have not seen
any direct evidence at this point that 100% financing is leading to greater losses," Mr. Stetson says.
The default rate on USDA loans is slightly better than the rate for FHA-backed loans. Some 11.35% of
USDA loans were delinquent in 2008, while 1.4% went into foreclosure, according to the department's
statistics. Meanwhile, FHA loans had a 13.6% delinquency rate, while 2.3% went into foreclosure. That
compares to a 4.3% delinquency rate and 1.6% foreclosure rate on prime loans, and a 20.0% delinquency
rate and 12.9% foreclosure rate on subprime loans, according to the Mortgage Bankers Association.
Unlike the FHA, the USDA programs rely on a fixed appropriation from Congress, which totaled $4.1 billion
in the 2008 fiscal year, and new loans can't be made once that allocation is exhausted. The program was
able to make nearly $7 billion in loans this year because it received additional funding from other
department sources.
But heavy demand for the loans has administrators asking for more money. Officials say that the program
will run out of money next month, even though it has been funded through March. "Up until only two years
ago, we weren't even using the full amount," says Mr. Stetson. "It has been rather incredible at how it has
taken off."
To apply for a USDA Loan in Florida please fill out the contact form and we will contact you within 24hrs
or call Suzie 352-213-3424